Blockchains are inherently decentralized. Unlike in centralized systems, where a single entity makes decisions, the decision-making process in blockchain is hugely decentralized. Thousands of computing devices (nodes) interact and decide the chain’s future.
In systems where many are charged with decision-making, disagreements are inevitable. So, how does blockchain ensure the network achieves consensus despite individual disagreements? It’s through blockchain consensus mechanisms.
A consensus mechanism is an automated system of protocols that enables the decentralized peer-to-peer blockchain nodes to agree on the state of the blockchain. Consensus mechanisms are designed to balance security, scalability, and decentralization in the blockchain.
Popular Consensus Mechanism
Proof of Work (PoW)
The proof-of-work (PoW) consensus mechanism came at the very dawn of the blockchain universe. The idea behind this mechanism was to prevent double-spending while securing the blockchain and transactions. PoW generally demands that network miners put in massive computational effort by solving some complex mathematical puzzle to spot a hash value.
After finding the valid hash, the miner creates a new block with the transaction and is rewarded with new crypto assets. However, proof of work has been criticized for its energy consumption.
Proof of Stake (PoS)
Proof of stake (PoS) is a consensus mechanism where validators earn a spot at verifying transactions by simply staking the coins held. The number of coins and the length of the stake are among the critical factors considered when selecting the validator.
Validators collectively verify blocks; when enough validators confirm accuracy, the block is finalized. In the end, the validators earn rewards. PoS came to reduce the computational workload while strengthening security and efficiency.
Iterations of Proof of Stake
Since its initial development, there have arisen multiple iterations of the PoS consensus mechanism, including:
Delegated proof of stake
In Delegated Proof of Stake, stakeholders elect a small number of delegates to validate transactions and create new blocks on their behalf. This system enhances scalability and efficiency by reducing the number of nodes required for consensus, while still maintaining a level of decentralization through the voting process. Elected delegates are accountable to the stakeholders, who can vote them out if they fail to perform adequately.
Leased proof of stake
Leased Proof of Stake allows stakeholders to lease their coins to a trusted node, known as a “supernode,” which uses the combined stake to increase its chances of being selected as a validator. This system benefits smaller stakeholders by enabling them to participate indirectly in the validation process, while still earning rewards. The supernode shares a portion of the rewards with the leasers based on their contribution.
Liquid proof of stake
Liquid Proof of Stake introduces flexibility by allowing stakeholders to delegate their voting power to other stakeholders temporarily. This delegation can be revoked or changed at any time, providing a dynamic and adaptive approach to network governance. Liquid PoS ensures that voting power can be concentrated on knowledgeable and trustworthy validators, enhancing the overall security and efficiency of the network.
Pure proof of stake
Pure Proof of Stake, employed by Algorand, randomly selects validators from the pool of stakeholders for each block proposal and validation process. The randomness ensures fairness and reduces the likelihood of centralization, as all stakeholders have an equal chance of being selected regardless of their stake size. This mechanism enhances security and decentralization by preventing any single entity from consistently controlling the validation process.
Byzantine Fault Tolerance (BFT)
Standing tall among the most popular blockchain consensus mechanisms is Byzantine Fault Tolerance (BFT).
Byzantine Fault Tolerance is a system’s ability to continue operations amidst other nodes’ failure. Failure occurs when the node provides misleading and incorrect information to other nodes in the system.
In a BFT setup, the system can reach consensus even when network nodes fail or respond with incorrect information—it can reach consensus on the validity of transactions in the face of attacks. The BFT system can spot and reject incorrect details while continuing to function effectively.
The BTF consensus mechanism requires a particular threshold of nodes, mostly ⅔ (66.7%) of nodes, to reach a consensus.
It derives its name from a popular analogy about Byzantine generals. In the analogy, each general has an army and a target point surrounding a city. All generals must agree on when to attack to win the battle. If the generals don’t reach a consensus, and some attack while others steer clear, the war is lost. The battle will also be lost if some generals are traitors and send the wrong info. That is a Byzantine fault.
BFT, therefore, arises from the fault, promising to validate transactions and reach consensus even when some generals don’t agree.
In BFT, the computational resources needed to participate in validation are lower than those needed for PoW and PoS. However, BFT demands high levels of trust within the network participants. If the majority of nodes share malicious info, the integrity of the entire chain will be at stake.
In 2024, there are at least two popular variations of the BFT consensus mechanism:
- Practical Byzantine Fault Tolerance
- Delegated Byzantine Fault Tolerance
Practical Byzantine Fault Tolerance
In essence, PBFT breaks the consensus process into small steps that are recurring in each transaction. Every step of the validation process requires the power of a different validator node.
PBFT affords blockchains with high throughput and low latency. However, it demands a specific number of nodes for consensus, which is only suitable for extensive networks.
Delegated Byzantine Fault Tolerance (dBFT)
As mentioned earlier, this is a marriage of DPoS and BFT. In this system, the blockchain consensus is attained after a vote. Each node has the opportunity to vote on the validity of the transaction.
In DBFT, the delegators delegate voting power to other trusted nodes participating in the validation work. Like PBFT, DBFT can also achieve low latency with high throughput. However, DBFT demands high levels of trust in the delegated validator node.
Proof of Activity Consensus Mechanism
Proof of Activity is a concept that marries the best of the two most popular consensus mechanisms: proof of work (PoW) and proof of stake (PoS). The most straightforward description of PoA is that it uses PoW mining to generate new near-blank blocks and PoS validator selection systems to validate the blocks.
This term was coined in 2014 by four developers, including Charlie Lee, the founder of Litecoin, who published a paper on this new technology.
Proof of Activity begins when the network miners leverage PoW concepts, doing complex mathematical algorithms to prove their commitment. Unlike in Bitcoin, where miners mine blocks of transactions, in PoA, the miners only add a blank template block containing crucial info about the header and mining reward address.
The system later selects random validators who sign the new block, offering a second-level consensus and validating this block. Like in PoS, where the amount of stake bolsters the chances of earning a validator spot, PoA also works the same way. All the validators mark the block as either valid or invalid. Once the number of validators is reached, a block is added to the chain.
Unlike PoW, Proof of Activity is less energy intensive, as miners don’t have to solve complex computations. Moreover, the system is protected from 51%-attacks since the network remains hugely decentralized.
Proof of Elapsed Time (PoET)
As a consensus algorithm developed by Intel in 2016, Proof of Elapsed Time assigns a random waiting time to each network participant, akin to a lottery system. With the Linux Project and IBM, PoET sponsored the development of the Hyperledger Sawtooth, a project leveraging the PoET consensus.
Interestingly, the PoET mechanism employs a fair lottery system, spreading the chances of winning too many network participants.
In essence, PoET randomly assigns a fixed duration of time to the network nodes. All nodes must sleep or focus on other tasks during the waiting duration. Nodes with the shortest waiting time wake up and add blocks to the network. They simply generate the hash associated with their transaction block and submit it for acceptance. The information is broadcast to the entire network, and the process begins again.
Proof of Authority (PoA)
A term coined in 2017 by Ethereum co-founder Gavin Wood, Proof of Authority is a blockchain consensus mechanism that relies on trusted validators to secure the distributed ledger. The Proof of Authority philosophy shares some similarities with proof of stake, where machines/nodes are selected to validate blocks.
However, there is a gigantic twist.
In PoS, nodes are selected to validate based on the size and length of the stake. In PoA, nodes are selected to participate in transaction validation based on a vetting process that examines their reputation. Therefore, in PoAs, the machines earn validating rights by building a good reputation.
However, for a node to earn a right to validate, it must fulfill the following essential requirements:
- The validator must be trustworthy, have no criminal record, and have good moral standing.
- The network must formally validate the true identity of the node.
- Validators must stake their reputations. This means undergoing serious scrutiny to reduce the chances of questionable validators participating in the validation.
Once a validator is acutely scrutinized and vetted, the process becomes fully automated, meaning validators don’t need to monitor their nodes constantly. The system selects the validators to validate a set of transactions.
In PoA, multiple validators are selected, but one serves as the leader node that validates transactions and releases the next block. The other selected validator nodes must confirm the validity of the signed block before it is added to the chain. Once the block is added, the leader role moves to the next selected node.
So, what happens when a validator leader node fails to generate a new block? The system autonomously markets them as inactive until this block creates a new block.
In some cases, some validator nodes could process fraudulent transactions. In this case, their reputation might be ruined, and their investment lost.
Proof of Burn Consensus Mechanism
Anyone who has been in the crypto space for quite some time now understands a thing or two about token burning. Token burning means destroying crypto assets from circulation by sending them to an address where they can never be spent.
In proof of burn, nodes or individuals only earn an opportunity to participate in the network by proving some degree of commitment by burning or destroying some network tokens.
This means the validators suffer some form of financial sacrifice displaying their commitment to the network, mitigating the chances of malicious acting. The validator suffers a short-term loss to prove long-term commitment. The more the coin burnt, the better the chances of mining the next block.
The miners first burn some cryptocurrency and then earn the right to participate in the validation and writing of new blocks based on the proportion of the burnt coins.
Interestingly, token burning reduces the amount of coins circulating, making the coins deflationary in the long term. As such, the primary benefit of PoB is a reduction in inflation of the crypto ecosystem since the tokens are reduced. Moreover, PoB is less energy-intensive than PoW.
However, one possible drawback is the complexity of determining the value of the burnt tokens since once they are burned, they can never be recovered.
Proof of Capacity/Space
What is Proof of Capacity Consensus?
Proof of Capacity, alternatively known as Proof of Space, is when nodes leverage their excess space in hard drives to mine cryptos. It functions almost similarly to PoW since it demands that nodes complete puzzles to add new blocks. But, instead of using extra computational power in mining, the node leverages the computer storage.
This type of consensus mechanism was born and popularized by only one crypto network called Burstcoin. The prospect validators allocate and dedicate the needed hard disk storage, which serves as a plot.
In a PoW system, the nodes repeatedly alter block headers and complete hashing to get the necessary hash. However, PoC differs in that a list of possible solutions is stored on the mining device before the mining. This means that persons with larger hard drives can store more solutions and hence have higher chances of mining.
In Burstcoin, the hard drive is plotted through Shabal Hashing. Shabal is the crypto hash function of Burstcoin, which is very complex to calculate.
During mining, the process involves searching a participant’s plot to spot the solution to the puzzle. Whoever spots the puzzle first has the right to add a new block.
Step 2 is where the actual mining occurs. Here, the miners calculate a scoop number. After generating the scoop number, maybe 21, the miner uses the nonce values therein to calculate a deadline value.
Calculating the deadline value is a process that continues until the minimum deadline is discovered. The miner with the most minimum deadline will forge a new block. By leveraging space, PoC becomes more energy efficient than PoW.
Proof of Importance Consensus Mechanism
In Proof of Importance (PoI), the mechanism selects the miners or harvesters of blocks based on their relevance to the network. It is simply a product of the NEM network.
In essence, the PoI system leverages a scoring system. It assigns a score to different blockchain nodes based on factors like:
- Coins vested: Nodes are required to vest some number of coins to earn eligibility for mining blocks
- Activity cluster: The network must consider the activity patterns associated with each node.
- Reputation: A node’s reputation within the network influences the score.
- Transactions: The number of transactions made through a given address also contributes to the score.
The higher the score, the greater the chance of mining blocks within a PoI-based blockchain. This system fosters fairness and is resistant to Sybil’s attacks.
Final Word
As blockchain technology continues to mature and gain mainstream acceptance, understanding the diverse consensus mechanisms becomes crucial.
Each consensus algorithm, from Proof of Work to Proof of Importance, brings unique benefits and challenges, shaping how decentralized networks operate and evolve.
This article serves as the first in a series that will explore these mechanisms in greater depth. We will seek insights from blockchain professionals to uncover which consensus methods might best support the future landscape of blockchain technology.
Stay tuned as we delve into the expert perspectives on optimizing security, scalability, and decentralization in this ever-evolving field.